Why don't Samsung/Motorola etc introduce a $399 Android tablet?

[thermal]

I'm not understanding the business logic of the iPad's Android competition.

Apple's products are notoriously overpriced. This is a well-entrenched reputation: you pay extra for higher quality build/materials and the Apple logo.

So it makes no sense to me that when the iPad 2 starts at $499, Motorola, Samsung etc. are introducing products that start at a higher price. Why not introduce an Android tablet for $399? Sure, it may not have an aluminum back and the latest gadgets, but it would be a good way to gain market share and make their presence felt.

If Apple can sell a $499 tablet and make a profit, surely Samsung etc can make a plastic $399 tablet and still make money?

 

[PSkeptic]

Head over to ARCHOS . Lot's of sub-$400 tablets out there. Or, Viewsonic's site.

 

[reiththestud]

There are a couple reasons for this. First of all, they are stupid. They fail to understand that part of PC dominance against Macs is that they cost so much less than their Mac counterparts. They feel that if they exceed Apple spec-wise, they should be able to charge more while ignoring the importance that brand recognition has on the American consumer (most of the companies are Asian based).
Secondly, it's harder for these companies to sell these devices as cheaply as Apple can. When someone buys a Motorola Xoom, Motorola gets paid. They get paid once, and that's it. When you buy apps in the marketplace, Motorola gets nothing. When you buy music from the Amazon music store, Motorola gets nothing. Motorola doesn't see another penny until you buy another Motorola tablet, or you buy accessories.
When you buy an iPad, Apple gets paid. When you buy music off of iTunes, Apple gets paid. When you buy apps, Apple gets paid. When you download free apps that are supported by iAds, Apple gets paid. Apple has turned iOS into a revenue stream that earns them profits almost every time you turn on the device. This is part of the reason Apple can sell them at the price they do and still make insane profits. If you use that device consistently for two years, Apple gets paid by you consistently for two years. This is the uphill battle that other companies are struggling with. But as you mentioned, they're not helping themselves AT ALL.

 

[mrspeedmaster]

To answer your question,

Apple has scales of economy no other companies have.
They also have the foresight to lock out future contracts years ahead.
This has been discussed by Wall Street and financial analysts many times over.

So basically, they get their components cheaper and guaranteed. They lock in the production times and manufacture from their suppliers. Foxconn probably gets paid to work 23 hours for Apple and the last remaining hour is divided up among Dell, HP, etc...
They have a 60 billion dollar cash reserve and make strategic investments. $3.9 billion in this, $1.7 in that, and it all adds up. They have a warchest that Motorola can't match.

Apple secures components way ahead and locks up supplies; forcing others to scramble for components.
Even though companies like Samsung and LG are suppliers, they have contractual obligations to fulfilled pre-paid orders from Apple. It is not like they can withhold those components. Also, Samsung works as a conglomerate. Samsung fab and LCD divisions need to make a profit. They won't withold their products/production run just for their mobile division. Each subsidary need to generate revenues. Apple's orders are guaranteed in advance.

Here are some articles:

Apple Buys Up Touchscreens, Limiting Supply for Rivals - Yahoo! News

"Touch panels are currently suffering the most serious shortage due to Apple holding control over the capacity of major touch-panel makers such as Wintek and TPK, and with U.S.-based RIM, Motorola and Hewlett-Packard also competing for related components, second-tier players are already out of the game," sources told the industry journal. (Research In Motion, maker of BlackBerry devices, is actually based in Waterloo, Ontario, Canada.)

Pattern of investment

"This follows a pattern that Apple has established," said Avi Greengart, consumer-devices analyst for Current Analysis. "When it sees a core component it needs, it places a big financial bet on it to lock up supply."
Greengart noted that Apple in 2004 invested in a huge supply of solid-state flash memory chips when it introduced the third version of its iPod music player. Previous versions used hard drives. In 2009 it was reported that Apple bought up nearly all of Samsung's NAND output for the first quarter.
"Supply-chain management of core components is absolutely a key factor in consumer devices," said Greengart, noting that last year HTC -- the maker of Verizon's most popular Android phone, the Droid Incredible -- was unable to get enough touchscreens from the division of Samsung that makes them, and turned instead to Sony for its Super LCD display technology. Companies that make touchscreens can't easily ramp up production to meet demand, since that would mean adding facilities and personnel -- long-term investments in a technology that is subject to rapid change and obsolescence.

And

Apple plugs supply-chain loophole; Samsung to supply $7.8 bln worth displays, processors and memory - International Business Times

Also PC Magazine quoting Korea Times reported in January that Samsung had signed an agreement with Apple to quadruple production of processors with fallout being that Samsung's semiconductor division will be manufacturing more chips for Apple rather than their own line of Galaxy devices. The report also stated that Samsung was investing $3.6 billion to expand its fabrication plant in Austin, Texas. Apple's A4 systems-on-a-chip (SoC) is manufactured by Samsung.

With Tim Cook, Apple's COO, filling in for Apple CEO Steve Jobs -- who is on medical leave -- smooth supply chain is his brainchild. Cook joined Apple in 1998 to straighten the operational morass that Apple was in during that time. CNN had reported that when Apple introduced the Nano in 2005, which had ushered in a revolution because of the use of flash memory, Cook was able to accurately forecast Nano's demand and had prepaid $1.25 billion to lock-in suppliers like Samsung and Hynix to effectively cater to the market through 2010.

While Apple is due to face stiff competition from new Android-based tablets like Xoom and Samsung Galaxy Tab 10.1 and webOS-based HP TouchPad, Apple has got an ace up its sleeve which reveals that the company is not just about design but also about operational management.


Read more: Apple plugs supply-chain loophole; Samsung to supply $7.8 bln worth displays, processors and memory - International Business Times

Bottom line, no 1st tier companies can compete with Apple on pricing in terms of Tablets. Cook, the COO, was on record of saying, Apple is willing and able to drop the price of the iPad. They could easily sell the 16GB wifi for $399.

They planned this 2 years ahead, locked the pricing. This is the same as SouthWest locking future contracts on gas. During the oil crisis in the past few years, Southwest Airline was able to weather the storm while many airlines were going bankrupt. Supply chain economics.

 

[thermal]

Head over to ARCHOS . Lot's of sub-$400 tablets out there. Or, Viewsonic's site.

No disrespect to Archos, but I don't consider them in the same league as HP, Apple, and Samsung.

 

[thermal]

There are a couple reasons for this. First of all, they are stupid. They fail to understand that part of PC dominance against Macs is that they cost so much less than their Mac counterparts. They feel that if they exceed Apple spec-wise, they should be able to charge more while ignoring the importance that brand recognition has on the American consumer (most of the companies are Asian based).

Completely agree.

Secondly, it's harder for these companies to sell these devices as cheaply as Apple can.

Disagree somewhat on this point. It's no secret Apple has 35-40% profit margins on its products. Surely a company as large as HP or Samsung has enough leverage to create a $499 tablet (similar to Apple's), cut profit margins to 23%, and sell for $399 (thus increasing their market share)?

 

[reiththestud]

Completely agree.



Disagree somewhat on this point. It's no secret Apple has 35-40% profit margins on its products. Surely a company as large as HP or Samsung has enough leverage to create a $499 tablet (similar to Apple's), cut profit margins to 23%, and sell for $399 (thus increasing their market share)?

You're right, they could. But Apple could literally sell their products at a loss and still profit because of the constantly returning revenue over the lifetime of the product. If their competitors lower their prices and it really starts eating into Apple's market share, Apple will just outdo them. Apple has pretty much accepted that they lost the PC race (even if they are catching up) and is satisfied with its current sales level with their Macs. iOS is their new baby and they want to maintain dominance.